New Tips Newsletter, Issue #11 - Higher Profits
The Easy Way To Increase Profits - Reduce Expenses
Why do you take the time and effort to market your business? The answer to that question may seem obvious. You market your business because you need more business. You want to make more money. You want to grow your business.
But actually you don't just want to take in more income or have more business. What you want is extra money you can take home. You want profits. Profits are what you take home after your business expenses and taxes.
Again, that may seem obvious. But here is an amazing fact that is rarely understood and utilized by small business owners.
It is far easier to increase profits by reducing your expenses than it is to create higher profits by increasing your sales.
And here is why that is true. When you do a massage, you don't make a 100% profit on the money. That is because you have to pay your business bills associated with doing that massage. But for every dollar that you reduce in expenses associated with doing that massage, 100% of that dollar goes towards increased profits.
Now admittedly massage businesses have the potential of having a higher profit range than some others. That is because many of your expenses are fixed expenses and these get less and less costly as you do more massage. Imagine though a business that has a 5% profit range. They can double their profits by reducing their expenses by just 5%. To achieve that same goal by increasing sales they would have to double their sales. And you can imagine how difficult it is for most businesses to double their sales.
This critical relationship between your business expenses and what you take home each month in profits is one of the most important lessons in business you may ever learn.
So many business owners keep doing more and more work and wonder why they don't have any more take home money (profits) at the end of the year.
What is great about reducing expenses to increase profits is that a little bit of work keeps paying you in increased profits over and over again, every time you do a massage. It is just like raising your prices, without your clients ever knowing it or feeling it.
Another good reason to be as profitable as you can be is because it means you have to do less work for the amount of money you bring home. This will reduce your physical and mental stress, will lower your burnout rate and it will make your business much more resistant to competition.
So, let's get down to work. Dedicate a week of work to listing and reviewing every single business expense you have. Then carefully evaluate each expense. Ask yourself these questions about each expenses.
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Do I need to be spending money on this?
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If so, what can I do to reduce the cost of this expense?
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And if I reduced or got rid of this expenses would it negatively affect my client's experience enough that I may lose clients because of it?
Let's go through some of the most common business expenses and look at how you can reduce them.
- Office Rent - If you already have a lease for your office space there is little you can do to reduce that expense. But when the time comes to renew your lease be prepared ahead of time. Know for sure that there is not a better situation available for less money. Be prepared to negotiate. It is not fun, but you can negotiate a lower price. Make sure you are not renting more space than you need. If you currently rent space for an office and massage room, consider moving your office home, because then you can create a home office tax write-off. You will have reduced your business expenses by renting a smaller space, and you will be able to write-off some of your home bills.
- Credit Card Processing Fees - This one is big. Every time a client pays with a credit card you pay a fee. If you are paying a high percentage for every transaction that is a critical expense that you can reduce. If you did not shop around and are using your local bank for your credit card processing services you are likely paying much more than you need to. And it can really add up. On a $70 dollar charge, if you pay a 2% transaction fee, that costs you $1.40 for every massage. If you are paying 4%, that would be $2.80 per transaction. Reduce this expense. Never go over six months without shopping around and making sure you are getting the best deal you can. Carefully review your bills every month. Banks are known to increase your fees without telling you. Don't agree to long contracts. If you have a Costco or a Sam's Club membership you can often get very good rates. Search the internet for competitive rates. And don't forget to watch out for those per-transaction-fees. If you pay one of these fees, your percentage charge should be lower.
- Credit Card Processing Machine - If you have a credit card processing machine in your office what are you paying for that? Do you rent it from your bank? With a little effort you can often find the exact same machine for sale on eBay or other discount internet sales houses for half the purchase cost that banks charge. If you are renting, it is almost always better to buy it (just don't pay the bank price for it.) If you don't process as many credit cards you can also have no machine, and just do your transactions with your telephone or on the internet.
- Debt Interest Rates – If you have any business loans or credit card debt, those are expenses of doing business. Make sure you are paying the lowest interest rates possible. It is easy to move debt from one credit card to another, or one bank to another. Or, contact your loaner and negotiate a lower rate.
- Internet Access Fees - Do you really need DSL or cable? Very few massage businesses require high speed internet. And the difference per month can be as much as $30 or more. Would dial up work for you? And with DSL or cable you often have to purchase or rent a modem (another monthly bill). With dial up you don’t, the modem is already in your computer.
- Cell Phones - Is it being used for business?
- Phone Lines - Do you need that extra line for fax and internet?
- Phone Services – Do you need call waiting, caller id, voice mail, etc.?
- Fax Machine – If you need fax, consider using an online fax service instead of purchasing a fax machine.
- Laundry Services - Make sure you are getting the most competitive rates you can.
- Lubricants - Can you buy in more volume and save?
- Essential Oils – Many companies offer wholesale pricing to therapists for a minimum order.
- Music - Share with other therapists.
- Office Setup – If you still need to set up your office, you can save an immense amount of money by being careful and shopping around.
- Business Cards, Letter Head & Envelopes - You can save a ton every year on these marketing expenses if you shop around. Maybe you don't really need that fine linen paper you like.
- Other Marketing Expenses – Compare shop for signs prices, ask your yellow pages reps for first time discounts, and negotiate every other marketing fee. Press to lower those monthly bills. A little effort here can mean an extra dollar or two in profits for every massage.
- Employees - Be very careful about hiring employees. Labor costs can easily kill a business. Make sure you carefully do your math. Figure in how much extra work you would have to do to pay the employee and make much more money than you would without the employee.
You probably have other expenese that are specific to your business that you need to also look at.
Remember, for every dollar you reduce in expenses, that is a dollar of pure profit.
